Brussels: ArcelorMittal, the world’s largest steelmaker, forecast a sharp fall in earnings in the third quarter due a slowdown in China, the normal summer lull and higher raw material costs.
The company, with output more than double that of its nearest rival, also said on Wednesday it was considering spinning off to shareholders its stainless steel division, which employs about 4% of its workforce.
ArcelorMittal said its much-watched core profit (Ebitda) would fall to between $2.1 billion and $2.5 billion in the third quarter, the mid-point being 23% below the second quarter number and worse than analysts had been expecting.
The market had on average forecast a figure of $2.6 billion euros, based on a Reuters poll of 12 analysts.
“Although the third quarter will be impacted by a combination of seasonal factors and the effects of the economic slowdown in China, underlying demand continues to show improvement,” chief executive Lakshmi Mittal said in a statement.
“The challenge for the second half of the year will be to pass on the full extent of cost increases to our customers,” he continued.
China Slowdown Concerns
ArcelorMittal used 78% of its capacity in the second quarter, up from 72% in the first. That would drop to about 70% in the third quarter.
Earlier on Wednesday, world No. 4 steelmaker Nippon Steel gave a forecast below market expectations amid worries about slowing growth in China.
ArcelorMittal said in a presentation that it believed the current destocking in China was temporary and that the fundamentals of that market were solid.
Nevertheless, higher raw material costs and an overall gloomier economic outlook are overshadowing a solid April-June period, when ArcelorMittal’s core profit (Ebitda) rose by 59% quarter-on-quarter.
The $500 billion steel industry serves as a broad gauge for the overall economy, with key pillars construction and autos.
Industry re-stocking and auto demand, props in the first half, are showing signs of fading. US auto sales in June slipped from May and major automakers said there was no sign of the second-half recovery they had expected.
Construction has remained weak. US home-builder sentiment hit a 15-month low in July, although new home sales rebounded in June.
Customers in general have paused their re-stocking.
Many Asian producers have slashed output in the face of steep price declines in China. Debt problems in Greece and other euro zone members have undermined the recovery in Europe.
ArcelorMittal shares are 23% down in the year to date and around 30% off a 2010 peak hit in April. The STOXX European basic resources index, of which it is a part, is flat this year and 14% off its April high.